Transcript Slide 1

News From Washington
Susan Gaffney
Director, Federal Liaison Center
GFOA
Government Finance
Officers Association
• Get Involved!
• GFOA President-Elect, Chris Morrill
• Committee Applications: Summer
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Overview
• Federal Budget
• Headlines Creating Legislative Interest
– Public Pensions
– Bankruptcy
– Municipal Bond Market
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3% Withholding
Tax Legislation
Implementation of the Dodd-Frank Act
SEC Activities
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The Cliff:
Temporary Federal Aid to States
(FY ’11 totals include both ARRA & Education Jobs Funds)
Federal Outlays
$120.0
$100.0
In
Billions
$80.0
$60.0
$40.0
$20.0
$0.0
2009
2010
2011
2012
2013
2014
2015
2016
Fiscal Year
Source: Recovery Act data come from GAO Report to Congress, September 2010
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Federal Budget: FY11
• H.R. 1473: Slashed nearly $40 billion from Federal
Programs
– CDBG ( Community Development Block Grant) will be funded at
$3.3 billion, $600 million less than fiscal year 2010
– HOME program loses nearly $200 million in funding
– Federal Highway Program is cut by nearly $900 million, while
funding for high speed rail would be eliminated
– Nearly $1 billion in cuts to workforce training programs
• Measure Includes $528 million for the National
Infrastructure Investment Grants Program
• Choice Neighborhoods and Sustainable Communities
Programs Each Funded at $100 Million
• $700 million for President Obama’s Race to the Top
Education Reform Initiative
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President’s Proposed FY12
Budget:
• $3.7 trillion Proposed Budget for FY 2012
– Freezes federal spending
– Tax increases for high income earners
• State and Local Govt. Reductions:
– Cutting $300 million from the Community Development Block Grant
Program
– $350 million cut to Community Service Block Grant
– $2.5 billion cut to Low Income Home Energy Assistance Program (LIHEAP)
– $600 million cut in public safety grant programs that assist state and local
govt. law enforcement
– $947 cut to grants for State Clean Water and Drinking Water Revolving
funds
• Funding Increases in Transportation and Education
– $556 billion six-year surface transportation reauthorization proposal
– $30 billion for National Infrastructure Bank
– $900 million funding for a new round of “Race to the Top” education grants
• Permanently reinstate the Build America Bonds (BABs) program at a
lower 28% subsidy rate
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House FY 12 Proposal
• $3.5 Trillion in Total Spending
• Returns Non-Discretionary Spending to Pre- FY08 levels
– Low-Income Home Energy Assistance Program to historical
levels: Acceptance of President’s Proposal
• $4 Trillion in Program Cuts/10 years
– Community Development Block Grants: Reduced sharply from
more than $4 billion to $1.5 billion
– 2/3 Affect Low Income Programs
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Repeals Health Care Law
Changes Medicaid Into Block Grant Program
Highest Individual and Corporate Tax Rate = 25%
Changes to Medicare Program
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Do They Come Together?
• The Battle of the Bulge: FY12
• Debt Ceiling Limit
• Do Tax & Entitlement Reforms Get
Addressed?
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Headlines = Legislation
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Legislation Allowing States to File for Bankruptcy
Federal Public Pension Disclosure Standards
No Bailout for States
Muni Bond Disclosure/Tower Amendment
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Headlines = Legislation
• Congressional Hearings
– House Oversight Committee
– House Judiciary Committee
– Senate Budget Committee
– Senate Finance Committee
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Public Pensions
• The Public Employee Pension Transparency Act,
H.R. 567 and S. 347
– Federal Reporting of Public Pension Liabilities
• Riskless Return Model
– If a public pension fund does meet these standards to
the Treasury’s satisfaction, any government that is
served by the fund will not be able to:
• Issue tax exempt bonds
• Receive BABs or other direct subsidy bond payments
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No Bailouts!
• S. Res 188
• No State Bailouts Resolution
– Bans federal bailouts of financially struggling
states
– Fed govt should “take no action to redeem,
assume, or gurantee State debt”
• Senator Kirk (IL) and 15 other Senators
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Munis / Tower Amendment
• Prohibits SEC and MSRB from directly or
indirectly requiring issuers to file
documents with those entities prior to the
sale of bonds.
• SEC May Want:
– Greater control of muni accounting standards
– More timely disclosure
– Interim Disclosure Requirements
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3% Withholding
• 3% Withholding and Annual Reporting
Requirement on Government Payments
• Begins January 1, 2013
• Applies to Governments That Spend > $100m/year on
Goods and Services
• Governments must withhold 3% of payment made to all
vendors (with some exemptions) and remit that 3% to the
federal government
• All Payments to All Vendors Must be Reported Annually to
the IRS
• Unfunded Mandate
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3% Withholding
• IRS Final Regulations [26 CFR Part 31.3402(t)]
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$10,000 Threshold
Existing Contracts Exempt if Not Materially Modified
Proposing all Contracts > 1/1/2014 Abide by Law
Determining $100,000,000 Threshold
• All payments, including under $10,000 except salary & fringe
benefits
• Average four of the five accounting year ending in 2011 or
the FY ending in 2011
• No penalties in place until 1/1/2014 for failure to withhold as
long as entity has made good faith effort to comply
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3% Withholding
• IRS Final Regulations
– Payment Card Transactions Exempt Until
Additional Guidance is Developed
– $10,000 Payment-by-Payment Threshold
– Requirements Only apply to Prime Contractor
– Govt. Entity Must Withhold Even if Payment
Agent is Used
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3% Withholding
• IRS Final Regulations: Exemptions
– Other govt. entities, tax-exempt organizations, tribal
govts, and foreign govts
– Interest Payments
– Purchase or Lease of Real Property
– Public Assistance / Welfare Payments
– Payments to a govt. employee
• Reimbursement of travel expense to employee
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Grant Funds
Loan Gurantees
Stock / Bond Purchases
Debt Repayment
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3% Withholding
• Reporting Requirements
– Form 945:
– Form 1099 - MISC
• Deposits
– Follow Employment Tax Rules
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Repeal 3% Withholding
Law
• S.89 and S.164: No VA Co-Sponsors
• H.R.674
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Rep. Connolly
Rep. Moran
Rep. Rigell
Rep. Wittman
• CBO: Delay implementation for 3 years
• Website RepealWithholdingNow.com
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Tax Legislation
• Major Tax Reform
– Gang of Six Five (including Sen. Warner)
– Eliminating Tax Exemption on Municipal
Bonds
• President’s Deficit Commission
• Wyden-Coats Legislation
– Eliminating State and Local Tax Deductions
– Changes to Property Tax Deductions
– When?
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Tax-Exempt Bonds
• Expired ARRA Bond Provisions
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BABs
Recovery Zone Bonds
Bank Qualified Debt $30 Million Limit
Private Activity Bonds Exempt from AMT
Federal Home Loan Banks Member Banks Able to
Offer Letters of Credit
• What to Expect in 2011
– H.R. 992 - Reinstate ARRA Bond Provisions
– S. 1016 - Permanent $30M BQ Limit
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Pre-Emption of State and Local
Taxes
• Federal Pre-Emption of Communication Taxes –
H.R.1002
• Digital Goods Legislation H.R.1860 and S.971
• Simplifying Business Activity Taxes – H.R.1439
• Federal Pre-Emption of State and Local Hotel &
Rental Car Taxes/Fees
• H.R.1864 – Prohibits States from Applying Their
Income Tax on Nonresident Workers, < 30 days
• Allowing Local Governments to Participate in
Federal Offset Program
• VA members on House Judiciary Committee:
– Rep. Forbes, Rep. Goodlatte, Rep. Scott
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Pre-Emption of
Telecommunication Taxes
• H.R.1002 Wireless Tax Fairness Act of 2011
– Pre-empt for 5 years S/L Governments Ability to Tax
Wireless Communications at a Higher Rate Than
Other Businesses
• Legislation would preempt state and local taxing
authority and represent a federal intrusion into
historically-protected state and local tax
classifications
• Lead other industries to seek similar special
federal protection from state and local taxes and
could create a direct threat to the fiscal health of
state and local governments
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Internet Sales Tax Collection
 Federal Legislation?
– Provides for Mandatory Collection of Taxes on
Remote Sales
• States Looking to Solve Problem,
Independent of Federal Action
– New York’s Amazon.com law
• VA Activities
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Dodd-Frank Act: What it Means for State
and Local Governments
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Municipal Advisors
Uniform Ratings
Increased Oversight of Credit Rating Agencies
MSRB Changes
GASB Funding
Regulating Derivatives Market
Asset Securitization Definition
Municipal Securities Studies
Office of Municipal Securities
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SEC Municipal Advisor Rule
• SEC Proposed Rule Defining “Municipal Advisors”
• All New SEC and MSRB Municipal Advisor Rules Would
Apply
• Elected Officials and Government Workers Exempt From
Definition
• SEC Proposes Including Appointed Members of State
and Local Governing Boards, Where Bond and
Investment Issues are Discussed, to Be Defined as
Financial Advisors
• Would Also Include Members of Public Pension Boards
• GFOA Opposes this Broad Definition
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Regulation of Municipal Advisors
• MSRB Regulation of Financial Advisors, Swap Advisors,
Guaranteed Investment Contract Brokers, Solicitors,
Finders, Third Party Marketers, Public Pension
Placement Agent, and other Market Intermediaries
• Rules Seek to Prohibit Fraudulent and Manipulative
Practices, Require Fair Treatment of Municipal Entities,
Restrict Real and Perceived Conflicts of Interest, and
Provide for Professional Standards and Continuing
Education
• MSRB Registration Required
• Fiduciary Duty Standard Mandated for Both Dealer and
Non-dealer Advisors
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Rating Agencies
• Must Use Consistent Rating Requirements
Across all Products
• Subject to Greater Liability
• SEC has Two Years to Mitigate Conflicts of
Interest
• References to Credit Ratings Will be
Removed from Federal Regulations
• Impact on State and Local Governments
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Additional MSRB Authority
• Changed From “Protect Investors” to
“Protect Investors and Municipal Entities”
• MSRB may develop information systems
with ability to charge reasonable fees
(except on issuers and obligated persons)
• Ability to charge “commercially reasonable
fees” for subscription products
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MSRB Board Composition
• The new law changes the composition of the MSRB
Board, requiring that it be composed of a majority of public
members as of October 1, 2010
• MSRB Board must include at least one bank, one brokerdealer, one municipal entity, one issuer, one investor
(institutional or retail), one municipal advisor and one
member of the public
• All must have knowledge of the municipal securities
industry
• VA Board Members:
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Sheryl D. Bailey
Deputy County Administrator for Management Services
Chesterfield County, Virginia
John E. Petersen
Professor of Public Policy and Finance, George Mason University
Arlington, Virginia
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Enhanced MSRB
• Ability to provide guidance and assistance to fellow
regulators in the enforcement of, and examination for,
compliance with MSRB rules
• Ability to assess regulated entities for late submissions of
data or other information pursuant to MSRB rules
• Fine sharing with SEC and FINRA
• FINRA required to seek guidance regarding MSRB rule
interpretations
• Provides for enhanced communication between MSRB
and FINRA regarding enforcement activities
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GASB Funding
• Allows SEC to Direct FINRA to Establish a Fee on Bond
Issuances to be Collected by its Members (Dealers) to
Fund the GASB
– Does NOT provide SEC or FINRA with direct or
indirect oversight over GASB budget or agenda
– Fees can only be used to support GASB efforts to
establish accounting standards according to GAAP
– Fees provided to GASB’s will be equal to their budget,
as approved by the FAF
• Forthcoming Proposal: In May, SEC Directed FINRA to
establish fee
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Derivatives Provisions
• Effective October 1, 2010, all swap advisors of state and
local governments and other governmental entities (such
as governmental pension funds) must be registered with
the SEC; this includes swap dealers serving as advisors
• The MSRB will have the authority to write rules for swap
advisors, such as rules on professional qualifications, payto-play, fiduciary duty and fair dealing
• State and local governments and other governmental
entities must have advisors that are independent of their
swap dealers to provide advice on the fair pricing and
appropriateness of the swap transactions
• Information reporting is required for all swaps
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Asset Securitization
• Language in the Act does NOT provide
municipal securities with a FULL exemption
of asset backed securities
requirements/definition
• Agency Rulemaking has proposed
excluding municipals from Asset Backed
Securities
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Studies: Muni Market
• GASB Funding: Completed 1/2011
– GASB is Underfunded
• Municipal Bond Trading Transparency:
Due 1/2012
• Issuer Disclosure and the Tower
Amendment: Due 7/2012
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Office of Municipal Securities
• Office of Municipal Securities Elevated to
Report Directly to the SEC Chairman
• Duties Include:
– Administer SEC rules affecting municipal
market
– Coordinate with MSRB on rulemaking and
enforcement
• SEC Internal Study Questioned Formation
of Office
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SEC Activities
• SEC Field Hearings: Municipal Securities
– Two Held in 2010
– Additional Hearings Likely in 2011
– Changes to SEC Rules (e.g., 15c2-12)
• Material Events Notices
• Applies to Variable Rate Debt
• Eliminates ‘Materiality’ Definition
– Legislative Requests
• Tower Amendment
• Direct Oversight Over Issuers
• SEC Muni and Public Pension Enforcement Office
• Greater SEC/IRS Cooperation
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MSRB - EMMA
• New Voluntary Fields, May 23
• Follow GASB or FASB
• Within Your CDA it States You Will Submit Annual
Filings 120 or 150 Days After End of Your Fiscal
Year
• GFOA BP Recommends Not Entering This Info
• Submit Links to Financial and Budget Information
on Your Own Web Site
• Submitting POS Documents
• Submitting Advance Refunding Documents
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Changes to Money Market
Mutual Funds Regulations
• Proposal to Eliminate Reference to
Ratings
• Stable vs. Floating NAV
• SEC Roundtable, May 14
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Regulatory Issues
• Treasury/IRS Issues
– Issuers Holding Own ARS, May Work Through IRS
VCAP
– Relaxing Arbitrage Rebate Rules
– BABs Oversight
• Receiving BABs Subsidies (June 30 Webinar)
– IRS Compliance Questionnaires: Advance
Refundings
• Debt Ceiling & SLGS
– SLGS Window Closed
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What Can You Do NOW?
• Reach Out to Senators and Representatives
to Support Repeal of 3% Withholding Law
• Reach out to Senators and Representatives
and Oppose Nunes/Burr Legislation
• Reach out to Senators and Representatives
About the Importance of Tax-Exempt Bonds
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Federal Liaison Center
• Staff and Issues of Expertise:
– Susan Gaffney: taxes, municipal bonds,
budget, banking, and general outreach
– Barrie Tabin Berger: pensions and
retirement, health care, communications,
budget
202-393-8020
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